The State of Online Video: Getting Paid for Content

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This guest post is written by Ashkan Karbasfrooshan, the founder and CEO of WatchMojo, a leading producer of premium, informative and entertaining video content. The company’s catalog of 5,000 videos has generated over 105,000,000 streams since 2006. Today, WatchMojo streams nearly 10 million videos each month and reaches 20,000,000 consumers online and offline.

Party like it’s 1999?

Online video is where search was in 1999: a major part of the digital media ecosystem is desperately looking for a business model and a leading ad format. We know what happened in search, while the early leaders ditched search-as-a-business for portaldom, Google stayed the course and built a $200 billion company.

Search captures intent, video captures interest. Intent offers advertisers a short-term benefit, interest a more long-term value.  Perhaps that is why it is taking longer for online video revenues are materialize in a major way.

Yet, over the past year, online video consumption has soared threefold and it appears that this might be the year that the medium grows up and sees its revenues take off too (fingers crossed).  This explains why in boardrooms large and small, everyone is trying to crystallize their online video strategy.

Old media and video: Those who can won’t, those who want can’t

When it comes to traditional media companies and online video: those who can won’t, those who want can’t.

Print media would love to ramp up video efforts, but they can’t because it’s not a natural part of their DNA, operations or culture.

Conversely, while television media companies can transition online, they won’t because it cannibalizes their larger offline revenue streams. To TV executives, online video is what the Web was to print media a decade ago: those who embraced it didn’t fare that well; those who shunned it died.

Lost in time

Last year marked the first drop in online advertising revenues since 2002: a 4.2% decline according to eMarketer. Combined with the economic meltdown, media executives had the knee-jerk reaction to knee-cap free, ad-supported content in favor of subscriptions.

Two years ago, the Wall Street Journal was considering going totally free.  Now suddenly everyone wants to erect pay walls. Problem is by the time these tactics are implemented, advertising will return faster than ever and old media will once again find itself on the wrong side of the equation.

The main difference between now and then

In 2000, when the Nasdaq crashed, it dried up the advertising money that venture-backed startups were spending online. Traditional marketers had yet to really experiment with online advertising. Today, as marketers start increasing advertising spending again, they are shifting more money to online at the expense of traditional media: Pepsi will shun Super Bowl advertising in favor of social media.

Social media and UGC changes things, sort of

Social media has changed the rules of engagement in news and publishing. But when it comes to ad-supported models, marketers will never feel 100% comfortable advertising alongside user-generated content.

This is why professional content remains the key ingredient to capturing those advertising dollars.

Where video and text diverge

Unlike articles, you can’t fool audiences as easily with videos.  It’s easier to get away with a slapdash article than with a slapdash video.  Thus, most of the existing online video content relies on “talking head” footage and Q&A formats which are relatively simple to produce. Most of the videos that pass for professionally produced videos should be articles. No wonder marketers remain hesitant to underwrite the genre.

Fiction vs. Non Fiction

Even non-fiction video content needs to be demonstrative (vs. descriptive). Meanwhile, chasing hits with fiction remains too speculative; the risk/reward benefit makes it prohibitive online. Producers who understand this will have an edge over time as budgets shift to video.

Premium vs. Super premium

Naturally, not all online video content is created or valued equally.  Traditional media companies produce super premium content. Web producers try to create premium content. However, both are professional.

While marketers will pay more for super premium content (which explains why Hulu commands a large premium in ad rates over the industry standard), online audiences tend to favor Web content whose format and style is more in tune with their more fickle tastes.

As such, those who mold their Web content offerings by mapping out super premium catalogs will also create more valuable libraries. While you cannot match production values, you should offer marketers the same value proposition, adjusted for the ROI that advertisers have come to expect from digital media.

The branded content hype

Branded content holds much promise. But it might be myopic to think that audiences will remain engaged with marketing videos disguised as entertainment. Advertorials in print media have long been a part of the magazine experience, but audiences have learned to bypass them.

Over time, the content itself filters audiences for advertisers. Advertising cannot fully replace or become the content outright. But producers who tastefully weave commerce into content will win.

Ultimately, the Field of Dreams approach might be more realistic: create content that you are passionate about and people want to watch, build an audience and then monetize it. We all want advertisers to pay for content before it’s green lit, but that doesn’t mean it will happen.

Licensing vs. Ad-supported

Of course, getting paid for content is ideal. But consumers will never pay for it online, so find other media companies who will.  To be able to become a supplier of content to other media companies and maintain the Field of Dreams philosophy, producers need to balance a) quantity, b) quality, c) frequency and d) consistency.

Getting paid for content by other companies is especially important with video content because even large media businesses are having trouble generating meaningful video advertising revenues.

Finally, to position for the day when video advertising becomes material, producers need to consider e) timeliness. Returning to the search parallel, what good did market share do in 1999 when queries weren’t being monetized? Creating so-called evergreen content gives one’s catalog a longer shelf life, which in turn protects against the short-term weakness in revenues and the long-term “build vs. buy” dilemma that old media (and eventual M&A acquirers) need to go through.

Even if you don’t take advice, learn from it

But that’s not enough. Companies will pay a supplier if they also offer f) variety.

About.com founder Scott Kurnit once gave me the best advice I didn’t fully heed. He cautioned me against covering too many categories. I didn’t take his advice, but made sure that if we did want to offer clients variety, then each category’s clips should be as good as what any best-of-breed producer offers.

Today, I think we do that. As we mark WatchMojo’s four-year anniversary and celebrate crossing the 100,000,000 cumulative video stream mark, we’ve learned that sometimes, you really have to go against the institutional imperative and find your own path in order to survive.

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